Final offer may not be Pfizer’s last
There might still be haggling to come for AstraZeneca
What is the difference between a “final proposal” and a “full and final offer”? A whole heap of haggling, perhaps. Pfizer’s “final proposal” to buy AstraZeneca, at £55 a share, may not be the end of the story. This despite a rejection of the approach by the UK drug company on Monday morning and a 14 per cent fall in its shares in early trading.
The 45 per cent premium to the undisturbed price offered by Pfizer is enough to convince many shareholders. What may give them pause for thought is that although the cash element has been increased from 33 per cent to 45 per cent, they would still take the remainder in the US group’s stock. The value of these shares could take a dive if the tax benefits driving this deal are unpicked by angry US legislators.
The tilt at AstraZeneca by Pfizer of the US has been playing out as a compressed version of Kraft’s purchase of Cadbury a few tears ago – necessarily so, since UK takeover rules were reformed to preclude such long sieges. Amid political furore, a big US company has been executing a bear hug on a smaller UK rival for largely defensive reasons.
Cadbury, chaired by Roger Carr, demurred prettily enough to get the bid value up. Similarly, AstraZeneca’s chairman Leif Johansson named his price for a recommended offer in his rejection statement – £59 a share, which represents a steep 21 times forward earnings.
Investors are liable to ask him to give Pfizer’s hard-nosed boss Ian Read a peek at the books as an incentive to go above £55 a share.
By the same token, Mr Read could probably better his offer to legislators, who with their natural penchant for inaction have just gone on holiday. They have been threatening to investigate and perhaps block the bid on national interest grounds. This would almost certainly be illegal under European law. A hiatus for wrangling with the European Commission would probably kill off the transaction, though.
It could be enough for Mr Read to guarantee a minimum sum of research spending for the UK for a fixed period to quell dissent. Pre-merger assurances have legal force for at least a year, a second reform triggered by the Kraft takeover. The siege defence mentioned earlier was a “put up or shut up” deadline for a firm offer. This is May 26 for Pfizer, but may be extended with AstraZeneca’s agreement.
Ultimately, both companies are in the same spot as blockbuster drugs developers in a world where the returns for blockbuster drugs are attenuating. Not so much two bald men fighting over a comb as two greying men scrapping over a bottle of Grecian 2000, if that is what market credibility amounts to. A pact to share the stuff is still possible.